There are a lot people who are looking for a home in Bellingham that have not yet been pre-approved for a mortgage, Lending rules and mortgage loan programs have changed a lot over the past years due to the housing market meltdown.
The first step every buyer should take should be to talk to a lender and get pre-approved so you know how much you are qualified to buy and what your payments
Here are some questions for you mortgage lender
1. What credit score do I need to buy a home? Usually lenders are looking for a minimum credit score of at least 620 to be considered. There are a few programs that will be lower than that but not many.
2. What do I need for a down payment? For a primary residence 3% to 3.5% of the sales price are usually the minimum down payment. 5% down of the sales price is a popular option for conventional financing. It may surprise not you that down payment can come from your own funds, but they can also be gift funds from a family member or a very close friend. There are also 2 zero down loans, “USDA or VA” both have requirements that need to be met. VA obviously requires being a Veteran USDA requires income limits and buying outside the Bellingham City limits.
3. What are the current interest rates? What interest rate are you offering me? Can I get a better price? It’s always good know what is the lowest interest rate available at any time. You should know there are options for buying down your interest rate or if just may be better to take a bit more time to pay off a few bills to get you to a threshold for a better rate. If you buy down the rate you may pay more up front to get the loan but you could end up saving thousands of dollars over the term of the loan. This usually works best if you plan on staying in your home a long time
4. What are closing costs, and how much will they cost? Closing cost are mainly title insurance and escrow fees as well as homeowners insurance paid upfront often for the first year, an appraisal for the buyer and recording fees. There may be a few other minor fees, I have even seen a $50 email fee. The major part of the closing cost will be the fee you are paying the lender to borrow the money for your loan and this can vary wildly.
5. What are your fees for my mortgage?
Don’t be afraid to ask how much your lender will charge you in the way of fees. Sometimes big banks will drop some of fees because of the amount of money they will make over the course of the loan. I have seen Credit Unions with very low fees, and competitive interest rates.
6. How much house can I afford if I only want my payment to be $X per month? Lenders will take your gross monthly income plug that into a debt to income ratio. So it depends on your income and other debts, along with your credit score. When they have that number they can figure out your monthly payment and from that determine a sales price that includes taxes insurance and any HOA fees.
7. Will I have to mortgage insurance (PMI)?
PMI insurance is required on most home loans with less than 20% down. This is insurance for the lender in the event you default on your loan. This payment does not go toward the principal or interest of your loan, it can increase you payment by $100-$200.00 a month.
8. Should I pay off other loans so that I can qualify for more? Don’t pay any debts off until you talk with your loan officer. Buyers usually think they are doing the right thing by paying off a car or other bills but sometimes it may not be necessary to qualify for a loan.
9. Can the seller pay the closing costs? Yes Closing Cost can be paid by the seller, Sometimes lenders will credit back some closing cost help as well, like paying for the appraisal.
What type of loan is best for me? There are several factors that will determine which loan you choose, such as down payment, credit score and which programs you qualify for .
10. Is there a prepayment penalty?
A prepayment penalty is a fee that you may be charged if you pay off your loan usually within the first 2 – 5 years. Life happen and sometimes brings unforeseen changes, and you don’t want to lose the equity you have been building in your home if for some reason you need to move or relocate.
11. Will you sell my loan?
Unless you are working with a local bank, chances are good your loan will be sold. Most often it will not make a difference, as the servicing will usually continue with the lender you got your mortgage from. But occasionally they can change.
If you’d like any more info about mortgages or want to talk to a lender about buying a home, I can help point you in the right direction.
image courtesy of www.gotcredit.com flickr.com